The 87A rebate is why millions of Indians pay zero income tax. Here's exactly how it works, who gets it, and what happens when you cross the ₹12 lakh limit by even ₹1.
Section 87A is a provision in the Income Tax Act that gives eligible individuals a direct rebate on their calculated tax. It's not a deduction from income — it directly cancels whatever tax was computed, bringing it to zero. For FY 2025-26, the rebate limits differ between regimes:
A salaried person earning ₹10 lakh per year under the New Regime. Tax is calculated, then wiped out by the rebate:
| Step | Amount |
|---|---|
| Gross Salary | ₹10,00,000 |
| Standard Deduction (New Regime) | − ₹75,000 |
| Taxable Income | ₹9,25,000 |
| Tax on ₹0–₹4,00,000 (0%) | ₹0 |
| Tax on ₹4,00,001–₹8,00,000 (5%) | ₹20,000 |
| Tax on ₹8,00,001–₹9,25,000 (10%) | ₹12,500 |
| Total Tax Before Rebate | ₹32,500 |
| Section 87A Rebate (taxable income ≤ ₹12L ✓) | − ₹32,500 |
| Final Tax Payable | ₹0 |
| Cess (4% on ₹0) | ₹0 |
| Total Tax + Cess | ₹0 |
Even though ₹32,500 of tax was calculated, the 87A rebate eliminates it entirely. This applies to any salaried person whose taxable income stays at or below ₹12 lakh under the New Regime.
Under the Old Regime, the rebate threshold is much lower. Only incomes up to ₹5 lakh taxable qualify:
| Step | Amount |
|---|---|
| Gross Salary | ₹5,00,000 |
| Standard Deduction (Old Regime) | − ₹50,000 |
| Taxable Income | ₹4,50,000 |
| Tax on ₹0–₹2,50,000 (0%) | ₹0 |
| Tax on ₹2,50,001–₹4,50,000 (5%) | ₹10,000 |
| Total Tax Before Rebate | ₹10,000 |
| Section 87A Rebate (max ₹12,500) | − ₹10,000 |
| Final Tax Payable | ₹0 |
The 87A rebate applies to the total tax on regular income — not the income itself. Your taxable income must be within the eligible limit. Capital gains taxed at special flat rates (STCG at 15%, LTCG at 10%) are excluded and must be paid even if your salary income is below ₹12L.
Crossing ₹12 lakh taxable income by even ₹1 under the New Regime means losing the entire ₹60,000 rebate. At ₹12,00,001 taxable, you suddenly owe ~₹83,200 in tax instead of ₹0. Marginal relief softens this — your tax is capped at the income above ₹12L — but only up to ₹12.75L taxable. Beyond that, full tax applies.
If your salary puts you close to ₹12L taxable income, ask your employer about NPS contribution under 80CCD(2) — this deduction is allowed even in the New Regime. A ₹1L NPS employer contribution at this level saves you ~₹83,000 in tax by keeping you below the rebate threshold.
Enter your salary and deductions to instantly see if the 87A rebate brings your tax to ₹0.
Calculate My Tax Free →The 87A rebate works together with the standard deduction, slab rates and marginal relief to determine your final tax: